Question

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: TotalDepartment $4,180,000 $3,120,000 $1,060,000 1,217,000 805,000 412,000 Hardware Linens Sales Variable expenses Contribution margin Fixed expenses 2,963,000 2,315,000 648,000 2,370,000 1,500,000 870,000 Net operating income (loss) 593,000 S 815,000 $ (222,000) A study indicates that $377,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 18% decrease in the sales of the Hardware Department. Required: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? in net operating income

Answer 1

Workings

Loss of contribution Linens	648000
Loss of contribution in Hardware	416700
Total Loss	1064700
Saving in Fixed cost	493000
Net loss	571700

Decrease

in net operating Income

571700

Kindly rate ............ If you find my work helpful